Nikola: One More Major Hurdle

May 06, 2022 6:21 PM ETNikola Corporation (NKLA)67 Comments5 Likes


  • Nikola is finally in production mode with revenues set to top $15 million in the June quarter.
  • The EV company still need more capital to fund the 2023 investment plan.
  • The stock has a reasonable valuation, but the dilution aspect makes investing here too tricky.
  • Looking for a helping hand in the market? Members of Out Fox The Street get exclusive ideas and guidance to navigate any climate. Learn More »
Highway Trucking

shaunl/E+ via Getty Images

Nikola (NASDAQ:NKLA) continues to make huge progress toward becoming a legitimate electric heavy-duty truck manufacturer. The company is now in full production mode with several expansion catalysts to drive revenues much higher in the years ahead. My investment thesis is more bullish on the stock, but capital remains an issue holding back the stock in the short term.

Catalysts Versus Capital

As BEVs start coming off the production line in Arizona, Nikola shareholders have to face the facts that production expenses and constructions costs are extraordinary. The company has taken multiple paths for vehicle manufacturing requiring far more capital. The business outlook highlights the positive scenarios, but these all come with additional costs:

Business Outlook

Source: Nikola Q1'22 earnings release

Nikola is impressively ramping up the production of Tre BEV trucks with a goal of producing 500 this year after only starting production in April. At a cost of $300K a truck, the company could generate $150 million in sales.

The current production line will only produce 2,500 trucks annually and Nikola needs to complete Phase 2 expansion in order to increase production to 20,000 trucks annually before moving on to bigger goals. The ultimate goal is to move beyond BEV trucks to FCEVs requiring pilot and beta testing in the year ahead along with additional production facilities.

Nikola ended Q1'22 with only $385 million in cash with plans to burn $750 million in cash this year. The company just raised $200 million in a capital raise, but the funds come at a cost of 8% in annual interest via cash payments or 11% via the issuance of additional debt.

Nikola needs to raise another $450 million this year along with pulling the $409 million from ELOCs in order to have up to $1 billion in funds needed to fund the 2023 capital plan. The biggest risk to the investment is the stock action prior to raising these funds with a horrible equity market backdrop causing the stock to hit recent lows despite bullish scenarios with the current production moves.

The company reported Q1'22 revenues of $1.9 million and guided to Q2'22 revenues of between $15 million and $18 million. The move officially pushes Nikola out of the pre-revenue phase into a real operating company.

The guidance is for sales of 40 to 60 trucks this quarter and 300 to 500 depending on the availability of chips from batter packs. Sales will quickly ramp over the next few years assuming Nikola grabs more orders. The company only lists 510 Tre BEVs POs, LOIs, and MOUs, so Nikola needs to start lining up some significant deals in order to ramp production next year to the initial 2,500 truck capacity.

The current analyst revenue target for 2023 is only $600 million, or the equivalent of 2,000 trucks. This revenue estimate appears very low considering the target is for up to 400 trucks to be produced in Q4 alone.

Data by YCharts

The stock only has a minimal market cap of $2.9 billion based on 433.5 million shares outstanding in Q2'22 and the current share price below $7. Nikola is no Tesla (TSLA), but the company is producing EV trucks hitting the road now. The stock trades at about half the forward P/S ratio of Tesla with faster growth in the years ahead.

Data by YCharts

The discussion hasn't even focused on the bigger opportunity in hydrogen fuel cells. The BEVs and capital raising success will be a signal for the market to start trusting the management team and rewarding the stock with a higher valuation based on the growth potential in FCEVs.

Analyst still have sales reaching the $5 billion range by mid-decade compared to some original forecasts by Nikola for $3 billion as early as 2024. Remarkably, the company isn't far off from those original expectations and definitely not so dramatically to warrant a $7 stock.


The key investor takeaway is that Nikola has an appealing market valuation now with the prospects for growth in the years ahead. The company does need to start lining up more orders with production full speed ahead to justify any stock rally, but the biggest issues remains the capital raise needed. Once enough capital is in the coffers for 2023, Nikola is a Buy.

If you'd like to learn more about how to best position yourself in under valued stocks mispriced by the market during 2022, consider joining Out Fox The Street

The service offers model portfolios, daily updates, trade alerts and real-time chat. Sign up now for a risk-free, 2-week trial to start finding the next stock with the potential to generate excessive returns in the next few years without taking on the out sized risk of high flying stocks. 

This article was written by

Stone Fox Capital profile picture
Out Fox the market with misunderstood, high reward opportunities
Stone Fox Capital Advisors, LLC is a registered investment advisor founded in 2010. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA.

Stone Fox Capital launched the Out Fox The Street MarketPlace service in August 2020.

Invest with Stone Fox Capital's model Net Payout Yields portfolio on Interactive Advisors as he makes real time trades. The site allows followers to duplicate the model portfolio in their own brokerage accounts. You can find the portfolio and more details here:

Net Payout Yields model

Follow Mark on twitter: @stonefoxcapital

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Nikola has one more major hurdle before the stock becomes a major Buy.

Recommended For You

Comments (67)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.